Enter Vesper’s commodity intelligence platform—a game-changer for procurement managers sourcing agricultural commodities aiming to optimize their strategies. Vesper’s platform is designed to streamline processes, bolster negotiation power, and refine buying strategies with the help of a wide range of real-time data sets, including pricing and production, import/export, supply/demand, and stock levels.
In this article, we’ll explore how the three most frequently used data sets by industry professionals empower them to navigate market volatility, reduce purchasing risks, and increase their negotiation power for crafting winning procurement strategies. Whether you’re dealing with dairy, oils & fats, or sugar, Vesper’s comprehensive platform is your secret weapon for procurement success. Let’s dive in and see how Vesper can transform your procurement approach!
1. The Vesper Price Index – A Frequently Updated Pricing Benchmark
Market participants often use Futures prices from stock exchanges like EEX, NZX, CME, ICE, SGX, and CBOT, which result from market forces such as supply and demand, as a price benchmark or open-source price indices, such as those provided by government agencies like the United States Department of Agriculture (USDA), International Grains Council (IGC) Grains or Oilseeds Index (GOI). These organizations typically collect and publish data on various commodities, including agricultural products, to provide transparency and aid market participants in making informed decisions.
However, it’s important to note that although prices from these exchanges can be used as a basis for valuation and risk management, no financial market is entirely immune to risks and fluctuations. Prices can be influenced by various factors, including economic indicators, geopolitical events, market sentiment, regulatory changes or by speculators who are not actually participating in the physical markets.
Just like futures prices, open-source price indices also have their downfalls. The frequency and timeliness of price releases, for instance, may vary. While government agencies strive to provide up-to-date information, there may be a lag between when the data is collected and publicly available. Additionally, the indices’ coverage may only encompass some market participants or regions. Depending on the specific index or report, it may focus on specific commodities or geographic areas.
Solution
To address these issues, we’ve introduced the Vesper Price Index (VPI) – an independent pricing index for the agricultural commodity market, exclusively available on Vesper. The VPI is based on pricing input carefully curated from respected market players, including buyers, sellers, traders, and brokers. We ensure we receive inputs from all sides of the market, ruling out outliers to provide a benchmark price that accurately reflects the market.
Our Vesper Price Index includes both spot and forward prices, offering comprehensive insights into current and future market conditions. Spot prices represent the immediate market price at which an asset, such as a commodity, can be bought or sold for instant delivery and payment. They are influenced by current supply and demand and provide a snapshot of the market’s current state. Conversely, forward prices are agreed-upon prices for transactions that will take place at a future date, incorporating current expectations about future market conditions and risks.
Key Benefits
The Vesper Price Index (VPI) is frequently updated to help you make informed decisions, stay on top of market fluctuations, and adjust your strategies accordingly. Its accuracy ensures fair pricing during negotiations, increasing your negotiation power and saving costs. With a global network of data suppliers, the VPI offers comprehensive pricing information from around the world, allowing you to benchmark supplier prices for various commodities.
- Wide range of commodities: The VPI covers a broad spectrum, including sugar, dairy, vegetables, and biochemical oils.
- Global prices: Vesper collects prices globally to provide a broad market perspective.
- Independent: As Vesper does not engage in buying, selling, or trading, the VPI remains an unbiased and independent benchmark.
- Market-representative: The VPI reflects input from buyers, sellers, traders, and brokers for reliable pricing.
- Real-time pricing: The VPI’s frequent updates help you stay informed and adjust to market changes promptly.
Use case
Ricardo Arellano, Risk Manager at Oleofinos, highlights the practical benefits of the VPI. He notes that the palm oil market lacked transparency and a global trade index. “Using VPI, I have an advantage compared to my colleagues; I am not blind anymore,” says Ricardo. He explains, “I used to receive open market requests and try to negotiate from there, offering a 40 to 50-euro discount without even knowing if it was a fair price. Now that I have the information I need, fighting for the right price is easy”
Ricardo shares how the VPI helped him secure better deals. “We received an offer for 1125 USD/mt when the Forward VPI showed us prices for 1100 USD/mt. With this information, negotiating became easy and fun,” he recalls. This access to detailed market information made negotiations more straightforward and cost-effective.
For Jorge Rodriguez, the Head of Vegetable Oils and Fats at Grupo Diana, the Rotterdam CIF price published by the Vesper Price Index is crucial (see Figure 1), as it serves as the reference price for exports in Colombia. “Even if the difference between the quote we receive and the VPI is only 2%, considering we purchase hundreds of tonnes every month, that’s a significant amount of money,” Jorge explains.
Figure 1: Forward Prices Positions for Crude Palm Oil (West-EU) in USD
The Vesper Price Index equips you with the tools to navigate complex and volatile markets effectively, ensuring you make informed decisions that reflect both current conditions and future expectations.
2. AI-Powered Price Forecasts
Procurement managers face the challenge of navigating an unpredictable and volatile market. They often struggle to make timely and informed decisions due to the large volumes of data they need to analyse and the complexity of these data sets. Additionally, limited resources and talent for building in-house data science capabilities further complicate their efforts to forecast market movements accurately. Without reliable forecasts, justifying their decisions becomes more difficult, making it essential to have dependable market insights.
In the face of these challenges, procurement managers must have a reliable market outlook on which to base their decisions. Correctly timing buying decisions is crucial to outperforming others and achieving the best possible results. However, traditional forecasting methods based solely on human capabilities often fall short of providing the precision and speed required.
Solution
Vesper’s AI-generated price forecasts offer a robust solution by providing predictions for future price, stock, and production ranges. Leveraging advanced machine learning technology, these forecasts deliver a clear understanding of potential market shifts, enabling informed and timely trading decisions.
Vesper’s AI-driven forecasts can analyse millions of global data points, significantly more than human analysts, offering broader and more accurate predictions. The complex model utilises predominantly technical analysis, examining historical patterns considering supply and demand (when available), technical indicators such as moving averages, Relative Strength Indices and Bollinger bands and economic indicators like oil and gas prices and inflation. The AI models are immediately updated every time a new data point is published, ensuring they remain always current and adapt to changing market conditions.
This comprehensive approach allows users to use an additional analysis method that is often difficult to obtain elsewhere and make informed, fact-based decisions, predicting unseen market shifts more effectively and enhancing human expertise rather than replacing it. By combining Vesper forecasts with their own fundamental analysis, Vesper offers users a comprehensive outlook on the market, enabling them to make more informed and fact-based decisions.
Key Benefits
- Extensive Processing Power: Our AI model can analyse millions of data points, far exceeding human capabilities, ensuring comprehensive and detailed insights.
- Advanced Data Interpretation: Our in-house data science team provides a highly technical level of analysis, offering unique insights that are challenging to obtain elsewhere.
- Transparent Predictions: We provide the average accuracy for each forecasted time period, giving you confidence in the precision and transparency of our predictions.
- Real-time Updates: Our forecasting model updates in real-time with each new data point, ensuring you always have the latest information for accurate decision-making.
Use Case
Vesper’s AI-driven price forecasts offer transparency and additional assurance in decision-making, making them a valuable tool without requiring significant investment in internal capabilities. Jan-Bert Banga, Regional Strategic Buyer for Dairy at Nestlé, highlights their importance: “We look at Vesper’s forecasts on a daily basis. Knowing what prices are expected to do in three or six months is the most important feature for us as buyers.” These forecasts, based on computer models, provide an unbiased perspective that helps Nestlé refine its buying strategies and policies.
Integrating Vesper’s tools into Nestlé’s procurement process has streamlined decision-making and improved efficiency. “Vesper helps us build a strong case for our purchasing decisions, whether it’s deciding to stop buying for a certain period or to lock in volumes when prices are favourable,” Banga notes.
For instance, Vesper’s price forecast for SMP indicated an upcoming price increase, prompting Nestlé to secure volumes in advance (see Figure 2). This foresight, combined with insights from Vesper’s price drivers section, market highlights, and Banga’s own fundamental analysis using dashboard data, enables Nestlé to stay ahead in the competitive dairy market.
Figure 2: Price forecast for SMP in EUR/mt
Supply and Demand
Procurement managers must continuously monitor supply and demand dynamics to make informed purchasing decisions. Understanding these dynamics is crucial for anticipating market movements, managing risks, and securing the best prices. However, the challenge lies in the sheer volume and complexity of the data, which often comes from multiple sources and requires real-time analysis.
In agriculture, activities are spread across vast and remote areas, complicating the collection of consistent and timely data. There is often a time lag between the collection, processing, and publication of agricultural data. By the time the data is published, market conditions might have changed, making the data less relevant for real-time decision-making.
Different regions may also have varying data collection standards and methodologies. Farming practices can vary widely between countries, regions, and even individual farms, leading to inconsistencies in how data is reported and interpreted. Additionally, a significant portion of agricultural transactions occur in informal markets, which are not always captured by official statistics, resulting in underreporting or inaccuracies in supply and demand data.
Solution
To address these challenges, Vesper offers comprehensive supply and demand data that is continuously updated and sourced from a global network of reliable providers. This data includes import/export figures, consumption data, production data, and ending stocks, providing a holistic view of market conditions. Each dataset can be analyzed independently through different views, as shown in Figure 3.
Figure 3: Supply and Demand for US Butter, by Vesper
Our supply and demand data sets come from both open sources and our partners, whose data is typically behind paywalls. This not only saves you significant time searching through various data sources, but it also saves you money on multiple subscriptions that you no longer need with Vesper.
USDA, UNICA, StatCan, MAGyP, DCANZ, AgriMet, MPOB, MAPA, Abiove, GAKPI, Eurostat, ZMB, ATIS, RVO, INALE, and AHDB are examples of open-source data. Partner sources include ChiniMandi, Ukragroconsult, Sunseedman, and BOABC.
In addition, Vesper supplements unknown market data with its own calculations. For instance, as consumption and ending stocks are not published for the EU-28, Vesper has created its own consumption calculation. From this calculation, we can publish the ending stocks. The method involves calculating consumption as a share of the disappearance. Disappearance in a certain month consists of both stock change and consumption (Disappearance = Production + Import – Export). For each month from 2012-2019, we calculated consumption as a percentage share of disappearance. To calculate the consumption for 2020, we used the average percentage share of each month from 2012-2019. This method ensures that consumption relies on production, import, export, and seasonality of the specific month.
Once the consumption is calculated, the Vesper team then estimates the monthly butter, SMP, and cheese stocks in the EU-28 using machine learning-based forecasting models. Consequently, the latest two to three stock-level values for EU-28 butter, SMP, and cheese are preliminary. A complete explanation can be found in the Help & Support section on Vesper’s platform.
Key Benefits
By providing detailed and up-to-date supply and demand data, Vesper empowers procurement managers to make strategic purchasing decisions. Monitoring this data offers several benefits:
- Understanding Market Trends and Price Fluctuations: Supply and demand directly influence commodity prices. Understanding these dynamics allows procurement managers to anticipate price changes and make informed buying decisions.
- Managing your Risk: Awareness of supply shortages or demand surges enables procurement managers to proactively adjust their purchasing strategies, helping to avoid potential supply chain disruptions and ensuring better inventory management.
- Increasing your Negotiation Power: Access to detailed supply and demand data enhances a procurement manager’s negotiation power, enabling them to secure better terms and prices from suppliers.
Use Case
Robert Hazenberg, Procurement Director for Direct Materials at Mead Johnson, exemplifies the importance of analyzing ending stocks for market sentiment. “Given China’s substantial market size, the impact can be immensely influential,” he states. Vesper’s supply and demand graphs provide crucial information, such as ending stocks, that can be critical in decision-making processes, see Figure 4. For instance, China’s response to low SMP prices by increasing imports led to stock levels exceeding 60,000 MT.
Figure 4: Supply and Demand for China SMP, by Vesper
Interested in leveraging Vesper’s advanced analytics and extensive datasets to save time, enhance negotiation capabilities, and secure better deals? Try Vesper for free and transform your procurement strategies.
